COMPENSATION MANAGEMENT

BUS- HRM 697

Lecture # 1

Work and Rewards

The employer-employee exchange process The reward system Rewards and the human brain A model relating compensation to workplace behavior

WORK AND REWARDS THE EMPLOYER-EMPLOYEE EXCHANGE PROCESS

People gain satisfaction from their work, but the kind and the strengths of satisfaction have been difficult, if not impossible, to identify, define and measure with any degree of precision. Furthermore, the individual performer may attain one set of satisfactions from work efforts whereas the group with which the same individual identifies attains another. Meanwhile, as the individual and the group coordinate their needs and efforts, a third set of satisfactions develops. The enigmatic issues related to work have defined simplification, but a better understanding may be gained by analyzing the process by which employers provide rewards in exchange for the availability, capability, and performance of the employee, as described in Figure. In the model here, the employer recognizes that individuals are both similar and different. The knowledge, skills, and abilities possessed by one individual may be far more valuable than those possessed by others. Employers use their reward system to attract and retain those who not only have the desired knowledge and skills but also have the interest and are willing to put forth the effort needed to link the knowledge and skills to the accomplishment of organizational goals and objective

THE REWARD SYSTEM

An organization is formed to accomplish a specific mission. To accomplish its mission, it must attract and hire people who have certain knowledge, skills, aptitudes, and attitudes. To attract and retain such people, the organization provides rewards. An organization designs and implements a reward system to focus worker attention on the specific behaviors the organization considers necessary to achieve its desired objectives and goals. The behaviors range from simply arriving at work at the scheduled time to meeting specified performance standards and providing innovative contributions that lead to improved organizational productivity. If rewards are to be useful in stimulating desired behaviors, they must meet the demands of the employees whose behaviors they are intended to influence.

Reward Process

Compensati on System

Noncompensation System

The reward system

The reward system of an organization includes anything that an employee may value and desire and that the employer is able or willing to offer in exchange for employee contributions. A rather broad classification scheme that facilitates the identification of the various kinds and qualities of rewards provided by employers is to separate the compensation components from the non compensation components. That is to say, all rewards that can be classified as monetary payments and in-kind payments constitute the compensation system of an organization. Monetary payments can be in the form of coins or paper money, or in the less tangible form of checks or credit cards. They have value in use and they simplify exchange transactions. In-kind payments are goods or commodities that are used in lieu of money and that provide an equivalent value for what has been offered or received. All other rewards constitute the non-compensation system.

REWARDS AND THE HUMAN BRAIN

The design, implementation, and administration of any reward component-or, for that matter, the entire compensation or non compensation system- require a sensitivity to and an understanding of human perceptions, needs, and drives. Given the current state of technology and the Framework existing in most organizations, designing and operating reward systems sensitive to human needs and psyches may be at the best difficult and frustrating and at worst a mission impossible. The central problem here is the brain and the way in which it controls human behavior are not yet fully understood. Although great advances have recently been made in understanding the function of the human brain, its operation continues to be a mystery to most people. Few if any lay persons

could recognize, much less explain, how one element of the brain functions in relation to another and then predict the actions that are likely to take place as a result of these functions.

The figure depicts the compensation-performance feedback loop in which compensation is a response of the employer to the performance stimuli of the employee, and performance is the response of the employee to the stimuli of the rewards received from the employer. There are no assurances that specific stimuli will or will not elicit specific responses. Motivational theory makes it possible to use observation and experience to identify rewardperformance directions, and on that basis to infer stimulus-response relationships among activities of employers and employees. Employee demands, as opposed to employee needs, are hardened needs expressed as behaviors that are observable and recognizable. They are not those behavior-molding conditions existing within the brain of a specific individual at a particular point in time. All individuals make demands that relate to present and future subsistence, to luxury requirements beyond subsistence, to leisure opportunities and activities, to opportunities for influence, and to saving and investing for future security. To identify the effect of a reward package on the employees of an organization, it is important to determine which portion of the package provides for subsistence, which portion is available as disposable income, and which portion provides for demands beyond subsistence. The figure describes the balancing of employee demands with employerprovided compensation rewards:

When employee demands are identified, certain requirements appear to be almost universal in nature. At survival or even subsistence level, employee food, housing, and clothing requirements must be satisfied. In addition, the modern worker will almost always expect transportation, some health care, and other benefits that extend beyond subsistence into luxury categories. Although these employee demands are universal, when they are joined together to form a set of requirements for a specific employee, employers may find that they differ significantly.

A MODEL RELATING COMPENSATION TO WORKPLACE BEHAVIOR

The model relating compensation to workplace behavior can be shown in the following figure:

Thinking To be human, to be alive, is to set goals. Some people set goals that determine their entire lifestyles; others set goals that may enable them to exist for the next couple of hours. Whether goals are set through an extensive thinking process or through a process that is barely recognizable to the individual goal setter, goals are set. Once a goal is set, a conscious decision is made as to how to best achieve that goal. The decision may be to do nothing, or the decision may include vigorous, innovative activities. Everything that a person knows or possibly has ever known may influence the thinking and the goal-setting activity. The knowledge that stimulates a certain course of action may come from some recent learning situation, or it may be the result of a learning situation far removed in time and space. Conceptualizing After setting the goals, the goal setter then develops abstract ideas of just how these goals can be realized. Now is the time to draw "the big picture" that matches socioeconomic, resource-providing opportunities with the resources required for achieving these lifestyle goals. Workplace activities afford an opportunity to the great majority of people to achieve the goals of a desired lifestyle. The workplace provides both compensation and noncompensation rewards, and the workers combine them in some unique manner to satisfy their specific socioeconomic requirements.

Reasoning Moving from the conceptualization of the big picture (desired quality of life) to the actual painting of it (specific lifestyle components), one finds that many variables influence individual determination of desired standard of living components. Variables that can be identified and maybe useful in relating reward components to differences in kinds and degrees of employee workplace behavior include the following employee characteristics: 1. Age 2. Gender 3. Level of education 4. Skills 5. Abilities 6. Traits 7. Health 8. Energy level 10.Present standard of living 11.Other available income 12.Financial status The reasoning process concerns the way an individual perceives a particular state of existence. Although an individual's perception may fail to recognize a significant part of the issue or state or may even draw an incorrect view of what exists, unless the perception changes, what the individual perceives is what exists. Focusing Before the thinking-conceptualizing-reasoning process results in a specific workplace behavior, the employee focuses on a desired goal or some segment of that goal (a sub goal). Both on- and of f-the-job situations have a strong impact on the focusing process, in which the employee relates a particular need-want-demand to perceived opportunities for its achievement. The 16 previously described employee characteristics, in addition to all previously gained knowledge, influence employee perceptions. The integration of situational and workplace demands and job requirements and responsibilities as understood and perceived affect the focusing process. Workplace Behavior Most employers want employees to exceed stated and accepted levels of performance. They want employees to use every means at their disposal to improve quality and quantity of output, reduce costs, and minimize wasteful use of resources (including a most valuable resource-each employee's available working time). In many cases, employers urge employees to expand their abilities and increase their worth to employers through additional education, training, and development programs. These efforts enhance opportunities for lateral and upward mobility. 14. Years on job 15. Kind of job 16.Level of job in organizational hierarchy 9. Family responsibilities 13. Years with employer

The difficulty in relating the design and the management of the "compensation system to employee needs and wants is that all other rewards (non-compensation components as well as compensation components) affect individual perception. The emotional forces in most people often screen what is actually seen or heard; thus people often see or hear only what they wish, according to preconceived notions or biases. Even with these limitations, employees do make rational decisions. The highest level of human intelligence comes to the fore when people determine what they are willing to provide and what they are willing to sacrifice to achieve a certain standard of living. However, employees are not unthinking tools to be manipulated by employers. Employers can influence employee behavior through their own behavior in terms of the rewards they provide. Employees have the right and the responsibility to do their own thinking, conceptualizing, reasoning, and focusing before implementing a specific behavior. It then becomes the responsibility of the employer to assess the value and the importance of a specific reward component and the way it influences employee behavior.